Federal Stimulus Legislation Bolsters CDBG Funding and Requirements Modified to Support Small Business & Community Needs

The Department of Housing and Urban Development Community Development Block Grant (CDBG) program addresses community development efforts all over the United States. The federal Stimulus legislation dramatically increased CDBG funding and added flexibility to program rules to support small business and community’s impacted by COVID 19.

CDBG funds are directed to community development activities that build stronger and more resilient communities. Overarching CDBG priorities include activities that address infrastructure, economic development projects, public facilities installations, community centers, housing rehabilitation, public services, microenterprise assistance. Meeting at least one of the CDBG national objectives remains a requirement when requesting funding – employing at least 51% low- to moderate-income persons, eliminating slum and blight, or meet an “urgent” need.

As a part of the federal stimulus package, the CDBG program will receive $5 B in supplemental funding, with $2 B being distributed according to 2020 allocation formulas in the next 30 days and $1 B being distributed to states to combat the spread of COVID-19 within 45 days. The balance of $2 B will be distributed to states according to economic and housing disruptions. The Secretary of HUD will determine the formula for distributing the balance of funds to states.

According to the Congressional Research Service, some localities in the U.S. have announced efforts to support community services (public transit in Augusta, GA) and small business support ($10,000 grants to small businesses in Seattle, WA impacted by COVID-19 outbreak) with CDBG funds. Other states and communities are looking to reprogram funding uses as part of long-term social welfare and economic development recovery efforts.

In Ohio, the Office of Community Development within the Ohio Development Services Agency has issued modifications to programming while Ohio is in a State of Emergency status, including:
⦁ 0% interest loans
⦁ Removing the 30% cap of program income received in one-year requirement for working capital loan requests
⦁ Working capital loans also will not require accompanying fixed-asset investment
⦁ Deferred principal and interest for new and existing loans for up to 6 months with a 6-month renewal option as deemed appropriate and document by local RLF boards, and
⦁ Applicant businesses may use current economic conditions to evidence that Ohio will imminently lose jobs to support a job retention claim.

Why CDBG is a Tool that should be in you Economic Development Toolbox
The CDBG program can be of great economic development benefit to a community in two ways – as a tool for public infrastructure improvements and as a gap financing solution for higher risk small business projects. Typically, CDBG funds can come in to support up to 50% of a project’s costs. The CDBG framework for determining qualifying funding is:
⦁ Fund up to 50% of total project costs, not to exceed $500,000
⦁ Up to $10,000 can be granted or loaned for every one full-time equivalent job created or retained as a result of the project
⦁ Public infrastructure projects (e.g., water, sewer, roads) are eligible for up to 50% CDBG grant funding, not to exceed $500,000, towards project
⦁ Private, for-profit projects can qualify for up to 50% CDBG low-interest loans, not toe exceed $500,000 towards project

Communities who have an eligible investment project can apply for funding from the state’s CDBG allocation. If approved, the state provides the CDBG funding to the local community who then invests the money into the project. If a CDBG loan is being issued by the state, the state grants that money to the community and the community then lends it to the business. The business then repays the loan to the local community, creating a local CDBG Revolving Loan Fund. These local CDBG RLF funds can then be continually reinvested into other economic development projects.

At the federal level, the CDBG stimulus-funded program has placed an emphasis on activities to support infectious disease response at the local level. An overview of eligible economic development uses to support infectious disease response includes:

Buildings and improvements, including public facilities, for testing, diagnosis or treatment demands. Rehabilitating a commercial building or closed school building are two examples of spaces that could be converted into infectious disease facilities.

Special Economic Development Assistance to provide loans or grants to private, for-profit entities that carry out an economic development project, including:
⦁ Grants or loans to support new businesses and business expansion that creates jobs and manufactures medical supplies necessary to the infectious disease response.
⦁ To avoid job loss caused by business closures related to social distancing by providing short-term working capital assistance that retains jobs held by low- and moderate-income persons.
⦁ Microenterprise assistance for technical assistance, grants, loans and other financial assistance to establish, stabilize, and expand microenterprises that provide medical, food deliver, cleaning, and other services to support home health quarantine.

For a complete list of CDBG stimulus-eligible activities related to the infectious disease response, visit: https://files.hudexchange.info/resources/documents/Quick-Guide-CDBG-Infectious-Disease-Response.pdf

Now is the time to look at community catalytic projects that could use CDBG funds to help with public infrastructure improvements or finance private sector projects and create a local RLF program for your economic development efforts. The Montrose team can help determine financing structures and programs to utilize and help package the applications for your community.

Contact Jamie Beier Grant at jbgrant@montrosegroupllc.com at the Montrose Group if you have an interest in gaining access to EDA funding or for other economic development efforts.